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Converting Your Product To Cloud Service: Lessons Learned

Many technology suppliers don't understand the cloud and are slow to convert. Accenture says you should learn from the example of and others.

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RightNow Technologies started out in 1997 as a SaaS and on-premises software company, with 15% of revenues coming from the on-premises customer contact software. As it matured, it found the development process for SaaS different from the on-premises model, where customers don't want frequent updates. It was hard to figure out how to incentivize the sales force to sell both on-premises licenses and SaaS subscriptions. And having two operational models for one product complicated revenue recognition and reporting. David Vap, chief solutions officers, told Accenture that the company decided to become a SaaS-only company at a time when its competitors tried to maintain both. The move rationalized sometimes conflicted business processes in the company and allowed the development team to focus on rapid updates and leveraging the power of cloud computing, he said.

In the third example, McKesson Technology Solutions unit consisted of many independent builders of healthcare systems, each addressing different market segments and generating a combined $3 billion in revenue. As more of them became SaaS providers, Robert Hendricks, senior VP of technology planning and software development in MTS, and other company officials realized the SaaS delivery model offered new opportunities that the various business units, still operating independently, couldn't capitalize on by themselves. In 2006, new regulations prompted the company to better address governance issues. Hendricks insisted its RelayHealth unit act in a more integrated way, adopting a definition of enterprise application architecture, along with standard process methodology, data management, testing models, and development tools. For its customers, RelayHealth was supplying connectivity solutions for the various functions of healthcare providers, pharmacies, and payers. It was important to maintain one set of standards for determining patient release, for example, across these communities as MTS built its SaaS systems. Governance has required forming strategic collaboration communities of developers, managers and users to evaluate quality and risk of new offerings. The governance communities allow the tensions inherent in providing healthcare to bubble up and be managed across a wider sphere, allowing more effective delivery of new McKesson products and services, Hendricks told the authors.

"Growing cloud-based business models is highly strategic and an immense undertaking for high-tech companies," said Mitch Cline, global managing director with Accenture's Electronics & High-Tech group, in a statement. Company executives wedded to traditional ways of doing business will find it hard to sort out what business models are already in use or which ones are needed to capitalize on the new opportunities that come with cloud computing. Based on interviews with 40 executives at 30 high tech companies, many "aren't prepared strategically or operationally to cope with the magnitude of disruption they're facing," he said.

The report recommends that companies take these steps to help overcome the challenges:

-- Determine what business models they have today and which ones are needed to capitalize on the cloud.

-- Build the capabilities needed to deliver business in the cloud.

-- Develop a segmented operating model to deliver the right customer experience and economics to the right groups.

-- Implement governance to make key product delivery and resource allocation decisions.

The pay-as-you go nature of the cloud makes ROI calculation seem easy. It’s not. Also in the new, all-digital Cloud Calculations InformationWeek supplement: Why infrastructure-as-a-service is a bad deal. (Free registration required.)

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